Correlation Between Toyota and Bayerische Motoren

Can any of the company-specific risk be diversified away by investing in both Toyota and Bayerische Motoren at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Toyota and Bayerische Motoren into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Toyota Motor and Bayerische Motoren Werke, you can compare the effects of market volatilities on Toyota and Bayerische Motoren and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Toyota with a short position of Bayerische Motoren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Bayerische Motoren.

Diversification Opportunities for Toyota and Bayerische Motoren

-0.01

Correlation Coefficient

Toyota  Bayerische Motoren

Good diversification

The 3 months correlation between Toyota and Bayerische is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Bayerische Motoren Werke in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayerische Motoren Werke and Toyota is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Toyota Motor are associated (or correlated) with Bayerische Motoren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayerische Motoren Werke has no effect on the direction of Toyota i.e., Toyota and Bayerische Motoren go up and down completely randomly.

Pair Corralation between Toyota and Bayerische Motoren

Allowing for the 90-day total investment horizon Toyota Motor is expected to under-perform the Bayerische Motoren. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor is 1.39 times less risky than Bayerische Motoren. The stock trades about -0.07 of its potential returns per unit of risk. The Bayerische Motoren Werke is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,039  in Bayerische Motoren Werke on December 29, 2024 and sell it today you would earn a total of  144.00  from holding Bayerische Motoren Werke or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Toyota Motor  vs.  Bayerische Motoren Werke

Toyota Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Bayerische Motoren Werke

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Bayerische Motoren is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Toyota and Bayerische Motoren

The main advantage of trading using opposite Toyota and Bayerische Motoren positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Bayerische Motoren can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Bayerische Motoren will offset losses from the drop in Bayerische Motoren's long position.

The idea behind Toyota Motor and Bayerische Motoren Werke pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.